Oct 262012

Apple earnings was less than expected. The charts have been updated to reflect the new valuation levels. You’ll notice the CPE levels have come down for the quarter just passed because of the new reality.

New valuation levels means new expectations for the  fall valuation low.  It is clear from the Valuation Range Chart that AAPL is trading in the lower portion of its one-year valuation range.  The Quarterly P/E Range Chart also shows the same conclusion.  Even though AAPL is at a low valuation, it has not yet dropped to the one-year valuation lows.

Let’s look at where the six-month, one-year, and two-year valuation lows have been, and where those valuation levels are now as a guide.  These can all be seen on the CPE Two-Year Chart, specifically:

  • CPE 13.4:  Represents the July low.  Earnings expectations are now lower than they were then, so I fully expect we will visit that level.  (Update 10/29:  The day after earnings we did indeed visit that level and bounced hard into the close.  The CPE 13.4 level is providing our first evidence of buying interest at that valuation.  A short term rally could develop from this level.  I expect this valuation level to eventually fail, and a lower valuation level to be seen before year end).
  • CPE 13.0:  Represents important bottoms from 2011.  This valuation level may hold.  It should be watched as a general area where buyers may come in to buy AAPL in large numbers.  AAPL may put in a bottom at this valuation level.
  • CPE 12.6:  Represents the level of the May 2012 low.  This is the most important bottom in 2012 so far.  It would be reasonable to expect AAPL to put in a low at a similar valuation level as the May low.
  • CPE 11.8:  Represents the lowest CPE level of the past year, from late 2011.  I do not expect this level to be seen this year.  Here’s why.  The late 2011 valuation level only became that low a valuation after the January earnings results were announced.  They were a blowout, higher than anyone expected.  It caused the CPE line connecting the Oct and Jan earnings announcement to be increased at a larger slope than when price was trading during the quarter.  Therefore investors and traders in December did not realize at the time that price had declined to a new record low of CPE 11.8.  That was only evident in retrospect.  Therefore I consider the CPE 11.8 a valuation level a “We’re not going there” line on my charts.

It is important to notice that the CPE valuation lines are increasing.  AAPL can make a lower valuation low and yet not make a lower price low.  It’s possible, especially if the valuation low is made later in the quarter.  So keep that in mind.  We’re analyzing valuation here.  Valuation changes over time, increasing every day according to our principle of Continuous Valuation.

Again, probably the most important two charts to track these levels going forward is my Valuation Range Chart and the Daily CPE Chart.  They show all the levels mentioned above and where price currently is within the range.